2: Chapter The Data of Macroeconomics Key Concepts Measuring the value of economic activity: GDP The circular flow Stocks and Flows Rules of computing GDP o Adding apples and oranges o Used goods o The treatment of inventories o Intermediate goods and value added o Housing services and imputation Real GDP versus Nominal GDP The GDP deflator The component of expenditure o National income account identity: Y=C+I+G+NX Measuring the cost of living CPI o The price of basket of goods o CPI versus GDP deflator Measuring the joblessness Unemployment rate Practice Problems Fill in the blank: 1. When a firm sells a product out of inventory, investment expenditures _________ and consumption expenditures _____________. 2. Nominal GDP means the value of goods and services measured in ___________ prices, while real GDP measures the value of goods and services in ________ prices. 3. Assume that apples cost $0.50 in 2002 and $1 in 2007, whereas oranges cost $1 in 2002 and $1.50 in 2007. If 4 apples were produced in 2002 and 5 in 2007, whereas 3 oranges were produced in 2002 and 4 in 2007, then real GDP (in 2002 prices) in 2007 was _________ 4. A farmer grows wheat and sells it to a miller for $1; the miller turns the wheat into flour and sells it to a baker for $3; the baker uses the flour to make bread and sells the bread for $6. The value added by the miller is __________. 5. A woman marries her butler. Before they were married, she paid him$20,000 per year. He continues to wait on her as before (but as a husband rather than a wage earner). She earns $1,000,000 per year both before and after her marriage. The marriage _________ (increases, decreases, or does not change) GDP. 6. If GDP (measured in billions of current dollars) is $5,465 and the sum of consumption, investment, and government purchases is $5,496, while exports equal $673, imports are ________. National 7. income equals net national product minus _________________. 8. Assume that apples cost $0.50 in 2002 and $1 in 2007, whereas oranges cost $1 in 2002 and $0.50 in 2007. If 10 apples and 5 oranges were purchased in 2002, and 5 apples and 10 oranges were purchased in 2007, the CPI for 2007, using 2002 as the base year, is _________. 9. An increase in the price of imported goods will show up in __________ but not _________.
10. Assume that the adult population of the United States is 191.6 million, total employment is 117.6 million and 9.4 million are unemployed. Then the unemployment rate is approximately ___________ percent.
11. If GDP (measured in billions of current dollars) is $5,465, consumption is $3,657, investment is $741, and government purchases are $1,098, then net exports are: A) $131. B) $131. C) $31. D) $31. 12. A woman marries her butler. Before they were married, she paid him $60,000 per year. He continues to wait on her as before (but as a husband rather than as a wage earner). She earns $1,000,000 per year both before and after her marriage. The marriage: A) does not change GDP. B) decreases GDP by $60,000. C) increases GDP by $60,000. D) increases GDP by more than $60,000. 13. Nominal GDP ($ billions Real GDP ($ billions 2000 chain weighted) Based on the data in the table above, explain what happened to output and prices in the economy between 2009 and 2010. 2009 $14,700 $12,100 2010 $15,200 $11,900
Answer Key: 1. decrease, increase 2. current, constant 3. $6.50 4. $2. 5. decrease by $20,000 6. $704. 7. indirect business taxes 8. 1.25 9. CPI, GDP deflator 10. 7.4 11. D 12. B 13. Real GDP decreased indicating that the production of final goods and services
was lower in 2010 than in 2009. Nominal GDP increased which indicates that prices, on average, were higher in 2010 than in 2009, given that real GDP decreased.